Disputes continue to rise throughout the construction industry, and the most frequent triggers relate to payment, changes, timelines, schedules, and quality. Given how costly and disruptive disputes are to business, industry pros encourage paying more attention to contracts before signing off on them. Proactively addressing resolution of common issues up front can effectively curtail problems from escalating into disputes when the going gets tough. Read on for tips about what to address before you commit to your next contract.
Avoid Common Contract Mistakes
Reminding us that how a contract is written matters, James Gallagher of Resolution Management Consultants points out: “On construction projects, the unexpected usually occurs. A properly written contract can eliminate many of the potential areas of dispute by providing a roadmap to resolution. Anticipating disputes and agreeing to methods for resolving them will go a long way towards preventing them….” Before signing off on your next contract, make sure it will help you avoid or curtail disputes by addressing what Gallageher considers the most common mistakes made in construction contracts, including these:
- A detailed process for communicating and handling changes is lacking.
Virtually all projects experience changes during their construction. Contracts should stipulate a formal process for communicating, approving and making changes that is followed by all and approved by all….
- The Force Majeure clause needs to be updated.
….The concept of Force Majeure has evolved to include modern day catastrophes, such as the pandemic, global supply chain interruptions, wars and other calamities. In modern construction contracts, it is important that Force Majeure clauses are revised to provide for today’s realities.
- Project scope is not well-defined, or the wording is too general.
For example, instead of writing “install lighting,” the scope should include a detailed description of the complete scope and steps for the lighting project. Different people understand things differently. The best contracts enable all parties to understand the same things the same way.
Before committing to a contract, Gallagher also encourages making sure that timelines and deadlines are well defined, that “completion” is clearly articulated, and that payment terms are also specific and detailed. Additionally, clarify the processes for assigning risk and resolving disputes, noting: “Care should be taken to define risk and identify who’s responsible for delays, defects, interruptions, price increases and other factors….When disputes arise, it can save a lot of time and money to have an already agreed-upon process for settling disputes that details negotiation, withholding payment, mediation, arbitration, litigation and other paths to resolution.”
Good To Do: An Ounce of Prevention
Stewart Whitehead, an attorney at Winstead in Austin, also advises contractors to prevent disruptive disputes by putting in the time to deeply understand the project and the contract on the front end:“You need to spend a little bit more time on the front end of the project….Spend a little bit of extra money on the contracts to account for known issues, and to try to think of things you may not know now based on your experience.”
In addition to paying careful attention to contracts at inception, it’s wise for construction business leaders to put solid communication and documentation practices in place on every project. In the day to day rush to the finish line, these business basics can easily get overlooked, though they are proven to pay off in the long run:
Collaboration is key in any successful construction project. Stakeholder meetings should be scheduled and organized at the beginning, throughout the duration of the project and at the end to ensure all team members are working on the same page … .Proper documentation is a key part to compliance and ensuring project quality. It’s important to maintain a manageable system of record keeping that provides easy access and up-to-date versions of construction documents.
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